Land Trust: How to Protect Assets and Stay Anonymous

Land trust: how to protect assets, defend against judgements and stay anonymous

A land trust is a separate legal entity. It owns or takes authority over a piece of property at the direction of that property’s owner. Land trusts are living trusts, so they allow for the management of the property during your lifetime. Like other types of trusts, a land trust can be tailored to your specific and unique needs.

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Who Uses a Land Trust?

As a property owner, how do you protect yourself against frivolous lawsuits? Some people search out individuals who have done well for themselves, only to file lawsuits against them for their own financial gain.

The good news is that a unique estate planning tool exists. It allows you, as a property owner, to title your property in the name of a trustee.

That trustee will then become the face of your property to the world. The beauty of it is that only you and the trustee will know of your ownership. This holds whether you own one property or many.

What is a Trust?

A trust is a legal contract between the settlor and the trustee. The settlor is the person who creates the trust and determines how it will be managed. The trustee is designated to manage the trust property.

Under this contract, the settlor transfers title to his or her property to the trustee. The trustee then manages that property for the benefit of a third party referred to as the trust beneficiary.

When the settlor transfers title to property to the trustee, the title splits into two different property rights:

Legal title to the property – the right to be known to the public as the owner of the property; and
Equitable or beneficial title to the property – the right to use and benefit from the property.

A trust allows the settlor to transfer legal title to property to the trustee. In addition, the settlor retains equitable title and beneficial interest in the property and, in some cases, control over the property.

What is a Land Trust?

A land trust is a type of trust specifically designed to hold and protect real estate. It is also the safest way to hold title to all types of real property.

An LLC involves annual fees, public disclosure, and possibly extra taxes. A land trust has no such downsides. It is also private and fast to set up.

Land Trusts & Asset Protection

Land trusts began in England in the Middle Ages as a way to prevent seizures and taxes by the King. Does this sound familiar to you? If you have personal tax liens or judgments, an effectively executed land trust can prevent these threats from attaching. They cannot attach to the property or equity held in the trust.

Many people consider using an LLC or a living trust to protect their real estate from financial threats. However, both an LLC and a living trust are part of the public record. Neither offers you the privacy of ownership that a land trust provides.

Why Hold Property in a Land Trust

There are a variety of reasons why you may want to hold property in a land trust. Chief among these are:

Privacy – The primary reason to hold property in a land trust is the privacy that it affords you. Unlike when you hold property in your own name, nobody can discover your ownership simply by searching public records. This is because your name will not appear on any public document as the owner of the trust or the trust property.
Asset Protection – A land trust also protects the owner against liens and judgments attaching to the property due to lawsuits, compliance code violations, taxes, etc.
Probate Avoidance – A land trust avoids probate. In other words, when the owner dies, the real estate can pass to his or her heirs without going through probate, saving both time and money.
For The Distribution of Your Property – For some individuals, a land trust is an excellent alternative to a living trust. It distributes property after death in a manner that will avoid conflict between family members and other potential private beneficiaries.

The use of a land trust will also allow you to safely acquire new property. Furthermore, if you already have an LLC or a living trust, either (or both) can work very well in conjunction with it.

Transferring Property into a Land Trust

Transferring a property you currently own to a land trust: Most states and counties have fully searchable property databases. If you already own the property in your name, the records will still list you as the prior owner when you transfer it to a land trust. A quit claim deed or zero dollar transfer from you to the trust will be a tip off. It shows that you control the trust and the property.

Points to Consider Before You Transfer

Naming an LLC as trustee of your land trust may provide privacy. However, laws vary from state to state, and the property records may disclose the name of the Manager of the Trustee.
Naming an unaffiliated individual as Trustee can provide privacy. However, it may make it difficult to sell the property if the named Trustee is no longer available.
Transferring the property may terminate title insurance for the property under the terms of some older title insurance policy provisions.
Transferring the property to a land trust could invalidate your homeowner’s policy if the trust is not a named insured on the property insurance policy. In this situation, the insurance company may be able to avoid paying a claim.
Transferring the property could trigger a due on sale clause if you name an LLC as beneficiary.
Land trusts do provide some privacy, but they do not provide any asset protection. Pairing one with a beneficiary LLC and Trustee LLC may provide some asset protection benefits but can have unintended tax consequences.
In states where transferring property incurs a stamp tax (i.e., Florida), there is no automatic exemption for transfer to a Trust. If you name an LLC as beneficiary or trustee, the stamp tax will in all likelihood be due. Many believe that you can avoid the stamp tax in another way. You transfer to a land trust where you are named personally as the beneficiary and trustee. Once the transfer is complete, you then assign the beneficial interest or trustee position to an LLC. The Florida Department of Revenue specifically addresses this, writing the stamp tax is due for an assignment of trust beneficial interest.

Buying property in a Land Trust when you need bank financing for the property:

Lenders in many states are not familiar with land trusts and may be unwilling to provide a loan on property purchased in one.
Lenders may require you, as an individual, to be the Grantor, the initial and current Trustee, and the primary Beneficiary. Otherwise, they will not provide a loan. This requirement may cause your name to appear in the title records.
Lenders may not allow you to name an LLC as Beneficiary or Trustee.
Lenders may require additional legal documents, certification, and statements of authority before they will close on the transaction. Someone may file these documents, with your name on them, in the property records, and they can compromise your privacy.
Almost all lenders will take some action that jeopardizes your privacy and places your name in the public record.
Lenders may not allow you to obtain the signature of a Nominee or Power of Attorney to secure the loan.
Government backed loans require the beneficiary to be a natural person and do not allow the Trustee to be an entity.

Buying property in a Land Trust for cash:

This is by far the easiest way to purchase property in a land trust.

For rental property, it will provide privacy if you list an LLC as Trustee and asset protection if you name an LLC as Beneficiary. However, purchasing the property in an Anonymous LLC will provide the same benefits at a lower cost.
For a primary residence, it will provide privacy if you list an LLC as Trustee. However, you should not name an LLC as beneficiary, as it could jeopardize your state homestead exemption and your primary residence capital gain exclusion.
However, the equity in the property may still be available to pay the claims of creditors. This is true whether the property is a rental or primary residence.

Advantages and Disadvantages of a Land Trust

A land trust is a separate legal entity that owns or takes authority over a piece of property at the direction of that property’s owner. Land trusts are living trusts, so they allow for the management of the property during your lifetime. Like other types of trusts, a land trust can be tailored to your specific and unique needs.

Estate planning frequently uses these trusts. They are revocable, i.e., the creator of the trust, also known as the grantor, can terminate or amend them at his or her discretion. The trustee and beneficiaries make up the other two key parts of the trust.

The trustee is the person who is responsible for managing the trust. For example, if the trust holds a rental property, the trustee would be responsible for collecting rent payments. The trustee would also make sure that the property is properly maintained. Beneficiaries benefit from the trust.

Advantages of Using Land Trusts

Land trusts can protect your privacy and shield you from liability. A land trust can provide anonymity because the trust owns the property, not the individual person. Therefore, the real estate investor’s name is not listed on any public real estate records. It also allows you to keep the property separate from other assets.

A land trust provides for “ease of conveyance” upon your death. Essentially, setting up the trust allows your property to transfer directly to your heirs or beneficiaries. Probate, which can be costly and time consuming, does not apply.

Finally, creating a land trust is a fairly straightforward process. It requires two main documents: the land trust agreement and a deed to the trustee.

Disadvantages of Using Land Trusts

One reason you may not want to use a land trust is that you will give up your redemption rights. Redemption rights allow you to reclaim your property before, and sometimes even after, foreclosure.

Most land trusts also do not qualify for secondary market loans. Additionally, you will forfeit any homestead exemptions by forming a land trust, which can have some serious tax consequences.

While land trusts can provide anonymity, this protection is not bulletproof. It’s possible that a court could issue an order requiring full disclosure of the property’s ownership. It’s important to remember that the real property owner, not the trustee, is the person who ultimately owns the property. Like the anonymity protection, the liability protection is also not foolproof for these very same reasons.

Finally, you will still have to file Form 1041 each year, as the IRS requires all trusts, including land trusts, to pay taxes.

While land trusts may be easy to create, the legalities can be complex and vary from state to state. It’s best to consult with an experienced estate planning attorney in your state to find out if a land trust is right for you.

Consult with an Experienced Trust and Estate Planning Attorney

Trusts are the cornerstone of estate planning, especially as it relates to asset protection. A land trust provides property owners with the added benefit of complete anonymity and privacy.

However, a land trust needs skillful drafting to keep your assets secure and your ownership private. Only the most experienced estate planning attorneys can provide that expertise.

For more information or for help drafting your own, contact a qualified trust and estate planning attorney in your area.

What is a “Land Trust” ? – How to Protect Assets, Defend Against Judgements, and Stay Anonymous